Key Highlights from Cheniere Energy’s 2Q17 Earnings Release

What Cheniere Energy’s Valuation Indicates after 2Q17 Earnings

By Kurt Gallon
|
Aug 11, 2017 4:54 pm EST

Cheniere Energy’s valuation

So far in this series, we’ve looked at Cheniere Energy’s (LNG) 2Q17 financial performance, the global LNG (liquefied natural gas) market, and market performance. In this part, we’ll do a valuation analysis for the company based on its historical and forward multiples.

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Cheniere Energy’s EV-to-sales multiple

Cheniere Energy was trading at an EV-to-sales (enterprise value to sales) multiple of 10.5x as of August 10, 2017. Its forward EV-to-sales multiple, which is based on the next 12-month sales estimate, was 7.0x. The lower forward EV-to-sales multiple might reflect revenue growth in the coming quarters, driven by the commencement of Trains 3 and 4 at the SPL (Sabine Pass Liquefaction) facility. However, its forward EV-to-sales multiple is still higher than the peer median multiple of 2.4x.

Cheniere Energy’s EV-to-EBITDA

Cheniere Energy’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 18.3x as of August 10, 2017. That’s higher than the peer median of 11.9x. Cheniere Energy’s high valuation compared to its peers might reflect its fixed stream of cash flow with 87.0% of its total capacity contracted under long-term take or pay agreements, first mover advantage, and the current government’s bullishness on LNG exports. At the same time, Cheniere Energy’s valuation looks high considering its low operating cash flows compared to its huge outstanding debt, resulting in a high leverage and uncertainties in the global LNG market due to the LNG supply glut.

Based on the expected run-rate EBITDA of $3.8 billion–$4.1 billion from seven trains, the company is currently trading at an EV-to-EBITDA multiple of 9.2x. Similarly, based on a run-rate distributable cash flow guidance of $1.5 billion–$1.7 billion, the company is trading at a price-to-distributable cash flow of 6.1x.

In the next part, we’ll look at Cheniere Energy’s recent analyst recommendations.